Temp Tumult

Industry Fears Regulation Straitjacket

Daimler temps reuters
A Daimler plant in Sindelfingen. The company is amongst those worried that new rules will reduce flexibility.
  • Why it matters

    Why it matters

    Germany’s labor reforms over a decade ago liberalized the temporary work sector, giving companies flexibility to hire more workers when demand increased. Now the government wants to impose more regulation.

  • Facts

    Facts

    • The Cologne Institute for Economic Research conducted a survey of some 400 German companies on government plans to regulate the temporary work sector.
    • The legislation would bring in equal pay after nine months and limit contracts to 18 months.
    • Unions support the new rules but employers argue it gives them less flexibility.
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    Audio

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Oliver Franke’s skeptical view of the German government’s new plans to regulate the labor market is only natural. His engineering company, Franke + Pahl, temporarily places skilled workers and engineers with companies. The planned regulation of temp work is therefore nothing less than a frontal assault on his business model.

“But our customers, which include Airbus, Beiersdorf, and Nestlé, are also concerned,” said Mr. Franke, who is managing partner at the firm. They are threatened with the loss of a solution that allows them to respond quickly and flexibly to any changes in demand, he explained.

The business community has been up in arms ever since the ruling center-right Christian Democrats and center-left Social Democrats included plans to limit the use of temporary workers in their coalition agreement.

The new rules would further restrict an employment option that has long been treated with suspicion in Germany, where it has only been legal since 2003 and remains more limited than in most other developed countries. It also comes at a time when the unemployment rate in Europe’s largest economy is at a record low, with many companies struggling to fill slots for skilled workers.

The Confederation of German Employers’ Associations, or BDA, has warned new rules on temporary employment could strangle what is a “key industry for growth and employment.” Labor unions have retorted the limits are a matter of fairness and avoiding the exploitation of temporary labor.

Mr. Franke’s viewpoint is supported by a study obtained by Handelsblatt from the employer-friendly Cologne Institute for Economic Research. “Temporary work is being threatened by a legally imposed reduction without being given the chance to further develop,” said Holger Schäfer, who wrote the report.

The coalition agreement calls for temporary workers to earn the same pay as full-time employees after working for nine months. The plan would also limit the duration of temporary employment to 18 months.

The study, which surveyed human resource managers and managing directors of about 400 companies, found this reform would lead to a higher turnover among temporary workers and be detrimental to both laborers and the companies hiring them.

 

“Temporary work is being threatened by a legally imposed reduction without being given the chance to further develop.”

Holger Schäfer, Cologne Institute for Economic Research

Some 47.8 percent of respondents said they would seek a new temporary worker for low-skill jobs after nine months to avoid paying the increase in wages due. Thus, low-skilled workers, who make up about half of Germany’s 800,000 temporary workers, would be unlikely to benefit from equal pay.

The shorter amount of time working for a company would lower the chances of proving their value to the business and potentially prevent them from earning qualifications.

Only one in three respondents to the study said they would consider retaining a temporary, low-skilled worker after nine months despite having to pay them more, but when it comes to skilled workers, the percentage increases to 45.9 percent.

Four in 10 respondents would consider hiring a skilled temporary worker after the nine-month period expired.

The report also notes that by limiting the maximum period to 18 months, the government makes it impossible for the temp agency sector to concentrate more strongly on the placement of skilled workers and highly qualified personnel. Complex assignments typically demand a longer period of familiarization.

This reason was cited by 41.7 percent of the respondents when asked if they would consider hiring a skilled employee full time after 18 months. Yet even in those cases, considerably more (62.2 percent) would opt to take on a new temporary worker after the time period elapsed.

Labor Minister Andrea Nahles, a member of the left-leaning SPD, still remains tight-lipped on the specifics of the new regulations. It remains an open question, for example, whether the maximum temporary work period refers to a specific individual, or whether a company can no longer employ any temp for a specific job once that period has expired.

The subject will be discussed in the cabinet sometime in May or June, according to the ministry’s project planning, and then work will begin on drafting legislation.  The only official word is, “Sometime this year more will have to be paid.”

Employers hope the government will drop the plans for the law. The BDA points out, for example, that temporary workers in many sectors such as the metal, chemical or textile industries are already paid at nearly the same rate as permanent staff via agreed wage supplements. Additionally, temporary contract work is not a case of precarious jobs, but protected employment that is subject to social security contributions.

In contrast, the Confederation of German Trade Unions, or DGB, says temporary workers are paid worse and risk being unemployed after just a couple of weeks or months on a job.

That ignores the fact, however, that the labor reforms that Germany first adopted in 2003 included the liberalization of temporary work and gave the unemployed prospects for the future.

The DGB, however, complains that it is an outrage that almost one in three unemployed workers who find socially-insured work land in a temporary job.

Given the difference of opinion, employers and unions are highly unlikely to reach an agreement on any exceptions to the forthcoming strict regulations. According to the institute in Cologne, provisos regarding collective bargaining agreements envisioned in the coalition agreement are the only chance to “avert the negative consequences for the labor market and overall economy.”

Frank Specht covers the labor market and industrial relations from Berlin. To contact the author: specht@handelsblatt.com

 

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